Exhibit 1
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY BE PLEDGED TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1),(2),
(3) OR (7) UNDER THE SECURITIES ACT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT SECURED BY SUCH SECURITIES.
UNLESS PERMITTED UNDER CANADIAN SECURITIES LAWS, THE HOLDER OF THESE SECURITIES
SHALL NOT TRADE THE SECURITIES BEFORE THE DATE THAT IS FOUR (4) MONTHS AND A DAY
AFTER THE DATE OF ISSUE OF THESE SECURITIES.
No. II-1 US$13,500,000
Date: June 23, 2006
NORTH AMERICAN PALLADIUM LTD.
SERIES II CONVERTIBLE NOTE DUE
DECEMBER 1, 2008
THIS NOTE is one of a series of duly authorized and issued convertible
promissory notes of North American Palladium Ltd., a company incorporated under
the Canada Business Corporations Act (the "COMPANY"), designated as its Series I
Convertible Notes due December 1, 2008, in the initial aggregate principal
amount of US$13,500,000 (collectively, the "NOTES").
FOR VALUE RECEIVED, the Company promises to pay to the order of
Xxxxxx-Xxxxxxx Oil Company or its registered assigns (the "HOLDER"), the
principal amount of Thirteen Million Five-Hundred Thousand Dollars
(US$13,500,000), on December 1, 2008 (the "MATURITY DATE"), or such earlier date
as the Notes are required or permitted to be repaid as provided hereunder, and
to pay interest to the Holder on the then outstanding principal amount of this
Note in accordance with the provisions hereof. In addition, the Company shall
pay to the order of the Holder interest on any principal or interest payable
hereunder that is not paid in full when due, whether at the time of any stated
interest payment date or maturity or by prepayment, acceleration or declaration
or otherwise, for the period from and including the due date of such
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payment to but excluding the date the same is paid in full, at a rate of 12% per
annum (but in no event in excess of the maximum rate permitted under applicable
law).
Interest payable under this Note shall be computed on the basis of a year
of 360 days and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which interest is payable.
Payments of principal and interest shall be made in lawful money of the
United States of America to the Holder at its address as provided in SECTION 17
or by wire transfer to such account specified from time to time by the Holder
hereof for such purpose as provided in SECTION 17.
1. DEFINITIONS. In addition to the terms defined elsewhere in this Note,
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Securities Purchase Agreement, dated as of March 24,
2006, among the Company and the Purchasers identified therein (the "PURCHASE
AGREEMENT"), and (b) the following terms have the meanings indicated:
"AMEX" means the American Stock Exchange.
"BANKRUPTCY EVENT" means any of the following events: (a) the Company or
a Subsidiary of the Company commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to the Company or any Subsidiary thereof; (b) there is commenced
against the Company or any Subsidiary any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any Subsidiary
is adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered and the order is not discharged
or stayed within 60 days; (d) the Company or any Subsidiary suffers the
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 days; (e) the Company or any
Subsidiary makes a general assignment for the benefit of creditors; (f) the
Company or any Subsidiary fails to pay, or states that it is unable to pay or is
unable to pay, its debts generally as they become due; (g) the Company or any
Subsidiary calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (h) the Company or any
Subsidiary, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in New
York City or Toronto, Canada are authorized or required by law or other
governmental action to close.
"CHANGE OF CONTROL" means the occurrence of any of the following in one
or a series of related transactions, in each case (other than pursuant to clause
(e) below) only if the occurrence is not approved or undertaken by KFOC or its
affiliates (so long as, at the time of such approval or undertaking, KFOC, or an
affiliate of KFOC, holds a majority of the Notes purchased by KFOC under the
Transaction Documents): (a) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1) under
the Exchange
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Act) of more than 50% of the voting rights or equity interests in the Company;
(b) a replacement of more than 50% of the members of the Company's board of
directors that is not approved or nominated by those individuals who are members
of management or the board of directors on the date hereof (or other directors
previously approved by such individuals); (c) an amalgamation, merger or
consolidation of the Company or a sale directly or indirectly of 50% or more of
the assets of the Company, unless following such transaction or series of
transactions, the holders of the Company's securities prior to such transaction
continue to hold at least 50% of the voting rights and equity interests in the
surviving entity or acquirer of such assets; (d) a recapitalization,
reorganization or other transaction involving the Company or any Subsidiary that
constitutes or results in a transfer of more than 50% of the voting rights or
equity interests in the Company; (e) consummation of a "Rule 13e-3 transaction"
as defined in Rule 13e-3 under the Exchange Act with respect to the Company or
any other transaction that would result in the Company no longer being a
reporting company under the Exchange Act; or (f) the execution by the Company or
its controlling shareholders of an agreement providing for or reasonably likely
to result in any of the foregoing events.
"CLOSING PRICE" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Shares are then listed
or quoted on an Eligible Market, the closing bid price per Common Share for such
date (or the nearest preceding date) on the primary Eligible Market; or (b) if
the Common Shares are not then listed or quoted on an Eligible Market, the
closing bid price per Common Share for such date (or the nearest preceding date)
on the TSX; or (c) in all other cases, the fair market value of a Common Share
as determined by an independent appraiser selected in good faith jointly by the
Purchasers and the Company, the cost of which shall be paid by the Company.
"COMMON SHARES" means the common shares of the Company and any
securities into which they may be reclassified or for which they may be
exchanged.
"CONVERSION PRICE" means US$12.18, subject to adjustment from time to
time pursuant to SECTION 13.
"ELIGIBLE MARKET" means any of the AMEX, the New York Stock Exchange,
the Nasdaq National Market, or the Nasdaq Capital Market.
"EQUITY CONDITIONS" means, with respect to Common Shares issuable
pursuant to the Transaction Documents (including, without limitation, upon
conversion or exercise in full of the Notes, Warrants and Unit Warrants), that
each of the following conditions are satisfied: (a) the number of authorized but
unissued and otherwise unreserved Common Shares is sufficient for such issuance;
(b) there are no restrictions upon issuance or resale of such Common Shares
under applicable U.S. securities laws, except to the extent that certain
restrictions on the resale of the Common Shares issuable in satisfaction of an
interest payment may apply to the Holder(s), provided that the Holder(s) may
request the filing of a registration statement to cover the resale of such
Common Shares pursuant to SECTION 2(A)(II) of the Registration Rights Agreement;
(c) the Common Shares are listed or quoted (and are not suspended from trading)
on an Eligible Market and such Common Shares are approved for listing upon
issuance; (d) such issuance would be permitted in full without violating SECTION
15 of this Note or the rules or regulations of any Trading Market; (e) no
Triggering Event or Event of Default, nor any event or circumstance
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that with the passage of time and without being cured would constitute a
Triggering Event or Event of Default has occurred and not been cured; (f)
neither the Company nor any Subsidiary is in default or has breached (without
cure) any obligation under any Transaction Document; (g) no public announcement
of a pending or proposed Change of Control transaction has occurred that has not
been consummated; and (h) the VWAP for the five consecutive Trading Days prior
to an "Interest Payment Date," "Principal Payment Date," "Conversion Date,"
"Event Payment Date" or "Change in Control Payment Date," (each as hereinafter
defined) as applicable, and the VWAP on the Trading Day preceding the applicable
date, is greater than US$3.00 (as adjusted for any stock splits, stock
combinations and similar events).
"EVENT EQUITY VALUE" means the arithmetic average of the Closing Prices
for the five consecutive Trading Days preceding either (a) the date of delivery
of the notice requiring payment of the Event Equity Value, or (b) the date on
which such required payment (together with any other payments, expenses and
liquidated damages then due and payable under the Transaction Documents) is paid
in full, whichever is greater.
"FLOATING PRICE SECURITY" means Common Share Equivalents with an
Effective Price or a number of underlying shares that floats or resets or
otherwise varies or is subject to adjustment based (directly or indirectly) on
market prices of the Common Shares.
"GOING CONCERN OPINION" means the issuance of an audit letter containing
a "going concern" qualification by the Company's independent public accountant
in connection with the Company's annual report on Form 40-F pursuant to Section
13(a) or 15(d) under the Exchange Act or any other filing with the Commission.
"ISSUE DATE" means the date of the issuance of this Note.
"KFOC" means Xxxxxx-Xxxxxxx Oil Company.
"ORIGINAL ISSUE DATE" means the date of the first issuance of any of the
Notes pursuant to the Purchase Agreement, regardless of the number of transfers
of any particular Note.
"REQUIRED EFFECTIVENESS DATE" means the date on which an Underlying
Shares Registration Statement is required to become effective pursuant to the
Registration Rights Agreement.
"TRADING DAY" means (a) any day on which the Common Shares are listed or
quoted, and traded on the AMEX, or (b) if the Common Shares are not then listed
or quoted, and traded on the AMEX, then any Business Day.
"TRADING MARKET" means the AMEX, the TSX or any other national
securities exchange, market or trading or quotation facility on which the Common
Shares are then listed or quoted.
"TRIGGERING EVENT" means any of the following events: (a) immediately
prior to any Bankruptcy Event; (b) the Common Shares are not listed or quoted,
or are suspended from trading, on an Eligible Market for a period of five or
more Trading Days (which need not be consecutive Trading Days) in any 180 day
period; (c) the Company fails for any reason to deliver
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a certificate evidencing any Securities to a Purchaser within five Trading Days
after delivery of such certificate is required pursuant to the Transaction
Documents or the exercise or conversion rights of the Purchasers pursuant to the
Transaction Documents are otherwise suspended for any reason, except as such
exercise or conversion may be limited pursuant to SECTIONS 15(C) and (D) or
except in the event the Company timely pays the Buy-In Price pursuant to SECTION
9(F) or Section 5(c) of the Warrants, as applicable; (d) the Company fails to
have available a sufficient number of authorized but unissued and otherwise
unreserved Common Shares available to issue Underlying Shares upon conversion of
the Notes and exercise of the Warrants and the Additional Units or any
conversion of Convertible Securities or fails to have full authority, including
under all laws, rules and regulations of any Trading Market, to issue such
Underlying Shares, except as such issuance may be limited pursuant to SECTIONS
15(C) and (D); (e) at any time after the Required Effectiveness Date, any Common
Shares issued or issuable pursuant to the Transaction Documents are not listed
on an Eligible Market (f) any other Event (as defined in the Registration Rights
Agreement) occurs and remains uncured for ten days; (g) the Company fails to
make any cash payment required under the Transaction Documents and such failure
is not cured within three Business Days after notice of such default is first
given to the Company by a Purchaser; (h) the issuance of a Going Concern
Opinion; (i) the Company breaches Section 4.15 of the Purchase Agreement; or (j)
the Company defaults in the timely performance of any other obligation under the
Transaction Documents and such default continues uncured for a period of ten
days after the date on which notice of such default is first given to the
Company by a Purchaser (it being understood that no prior notice need be given
in the case of a default that cannot reasonably be cured within ten days).
"TSX" means the Toronto Stock Exchange.
"UNDERLYING SHARES" means the Common Shares issuable (a) upon conversion
of the Notes and/or upon exercise of the Warrants (including the Notes and
Warrants issuable upon exercise of the Unit Warrants, (b) as payment of
principal and/or interest under the Notes, and (c) in satisfaction of any other
obligation (if any) of the Company to issue Common Shares pursuant to the
Transaction Documents.
"VOLUME WEIGHTED AVERAGE PRICE" or "VWAP" means, with respect to any
particular Trading Day, the volume weighted average trading price per Common
Share on such Trading Day on the primary Eligible Market on which the Common
Shares are traded on such Trading Day, as reported by Bloomberg, L.P., or any
successor thereto performing similar functions.
2. INTEREST.
(a) The Company shall pay interest to the Holder on the then
outstanding principal amount of this Note at a rate of 6.5% per annum. Interest
shall be payable on the first day of February, April, June, August, October and
December (each, an "INTEREST PAYMENT DATE") in arrears (each payment, an
"INTEREST PAYMENT"), except if such date is not a Business Day such interest
shall be payable on the next succeeding Business Day. The first Interest Payment
will be payable on the first Interest Payment Date occurring not less than 30
days following the Issue Date.
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(b) At the Holder's election, the Company shall pay each Interest
Payment either (i) in cash, (ii) in Common Shares, or (iii) in any combination
thereof. The Holder may deliver written notice (an "INTEREST PAYMENT NOTICE") to
the Company indicating the manner in which it elects to receive an Interest
Payment at least ten Trading Days prior to each Interest Payment Date, but the
Holder may indicate in any such notice that the election contained therein shall
continue for subsequent Interest Payment Dates until revised in a subsequent
Interest Payment Notice. Failure to timely provide such written notice before
any Interest Payment Date shall be deemed an election by the Holder to be paid
in cash in respect of the Interest Payment due on such Interest Payment Date.
(c) Notwithstanding the foregoing, the Company may not pay interest to
the Holder by issuing Common Shares unless, at such time, the Equity Conditions
are satisfied (or waived in writing by the Holder) with respect to such Common
Shares; provided, that if clause (h) of the Equity Conditions is the reason the
Company may not issue Common Shares pursuant to this Section, but the minimum
price requirement in such clause was met during any of the five Trading Days
during the measurement period, the Holder may waive such clause (h) to allow the
Company to pay interest using a combination of cash and Common Shares, with the
portion of such interest paid in Common Shares being proportionate to the number
of Trading Days during which the minimum price requirement was met during the
five Trading Day measurement period. (d) In the event the Holder elects to be
paid all or any portion of an Interest Payment in Common Shares, the number of
Common Shares issuable in respect of such Interest Payment shall be calculated
by dividing the portion of the Interest Payment the Holder has elected to
receive in Common Shares by 90% of the VWAP for the five consecutive Trading
Days immediately preceding the Interest Payment Date.
(e) In the event the Holder elects to be paid all or any portion of an
Interest Payment in Common Shares, and the Company is unable to issue such
Common Shares due to restrictions on issuance imposed under applicable U.S. or
Canadian securities laws or rules or regulations of the Eligible Market on which
the Common Shares are then traded or the TSX or a failure of any of the Equity
Conditions, any portion of such Interest Payment that the Company may not pay in
Common Shares shall be paid in cash on the applicable Interest Payment Date. To
the extent that interest is to be paid in Common Shares, the Company shall, on
or before the third Trading Day following the applicable Interest Payment Date,
issue and deliver to the Holder a certificate, registered in the name of the
Holder or its designee, for the number of Common Shares to which the Holder is
entitled.
3. PRINCIPAL.
(a) The Company shall pay the principal balance of this Note to the
Holder in nine equal payments made on the first day of February, April, June,
August, October and December (each, a "PRINCIPAL PAYMENT"), such payments
commencing on the first such day that is at least twelve months after the Issue
Date and with final payment in full of all outstanding principal to be made on
the ninth such payment (the date of each required payment of principal, a
"PRINCIPAL PAYMENT DATE"). If a Principal Payment Date is not a Business Day,
then the Principal Payment due on that date will be due on the next succeeding
Business Day. To the
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extent any portion of the principal balance of this Note has been converted by
the Holder to Common Shares pursuant to SECTION 8 below, the final Principal
Payment that would otherwise be payable to the Holder shall be reduced by the
portion of the principal so converted until reduced to zero, and thereafter
Principal Payments shall be reduced in reverse order of maturity (I.E., last
scheduled Principal Payment first), provided that the Holder may elect prior to
any Principal Payment, by indicating so in writing prior to the date thereof,
that any prior conversion should be applied to reduce an earlier Principal
Payment that would otherwise be payable to the Holder. Unless the Holder has
elected to be paid a Principal Payment in Common Shares pursuant to SECTION
3(B), the Company may defer a Principal Payment to the Holder until a subsequent
Principal Payment Date, but not later than the final Principal Payment Date as
provided above; PROVIDED, HOWEVER, that if the Company intends to defer a cash
payment to the Holder, the Company must deliver written notice (a "DEFERMENT
NOTICE") to the Holder not less than five Trading Days prior to the applicable
Principal Payment Date. The amount of any deferred Principal Payment shall
remain outstanding and interest will continue to accrue (and shall be payable)
on such outstanding amount until the date of payment.
(b) At the Holder's election, the Company shall pay any Principal
Payment either (i) in cash, (ii) in Common Shares, or (iii) in any combination
thereof. The Holder may deliver written notice (a "PRINCIPAL PAYMENT NOTICE") to
the Company indicating the manner in which it elects to receive a Principal
Payment at least ten Trading Days prior to each Principal Payment Date, but the
Holder may indicate in any such notice that the election contained therein shall
continue for subsequent Principal Payment Dates until revised in a subsequent
Principal Payment Notice. Failure to timely provide such written notice before
any Principal Payment Date shall be deemed an election by the Holder to be paid
in cash in respect of the Principal Payment due upon such Principal Payment
Date.
(c) Notwithstanding the foregoing, the Company may not pay the
principal balance of this Note to the Holder by issuing Common Shares unless, at
such time, the Equity Conditions are satisfied (or waived in writing by the
Holder) with respect to such Common Shares and all of the Underlying Shares then
issuable upon conversion in full of all the outstanding amount of the Notes, the
Warrants and the Unit Warrants (without regard to any limitation on conversion
or exercise, as applicable, or issuance of Common Shares); provided, that if
clause (h) of the Equity Conditions is the reason the Company may not issue
Common Shares pursuant to this Section, but the minimum price requirement in
such clause was met during any of the five Trading Day measurement period, the
Holder may waive such clause (h) to allow the Company to pay principal using a
combination of cash and Common Shares, with the portion of such principal paid
in Common Shares being proportionate to the number of Trading Days during which
the minimum price requirement was met during the five Trading Day measurement
period.
(d) In the event the Holder elects to be paid all or any portion of a
Principal Payment in Common Shares, the number of Common Shares issuable in
respect of such Principal Payment shall be calculated by dividing the portion of
the Principal Payment the Holder has elected to receive in Common Shares by 90%
of the VWAP for the five consecutive Trading Days immediately preceding the
Principal Payment Date (but not including such date).
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(e) In the event the Holder elects to be paid all or any portion of a
Principal Payment in Common Shares, and the Company is unable to issue such
Common Shares due to restrictions on issuance imposed under applicable U.S. or
Canadian securities laws or rules or regulations of the Eligible Market on which
the Common Shares are then traded or the TSX or a failure of any of the Equity
Conditions, any portion of such Principal Payment that the Company may not pay
in Common Shares shall be paid in cash on the applicable Principal Payment Date.
To the extent that Principal Payments are to be paid in Common Shares, the
Company shall, on or before the third Trading Day following the applicable
Principal Payment Date, (i) issue and deliver to such Holder a certificate,
registered in the name of the Holder or its designee, for the number of Common
Shares to which the Holder is entitled, or (ii) except to the extent prohibited
by law or to the extent the Company cannot do so after using commercially
reasonable efforts, at all times after the Holder has notified the Company that
this clause (ii) shall apply, credit the number of Common Shares to which the
Holder shall be entitled to the Holder's or its designee's balance account with
the Depository Trust Company (the "DTC") through its Deposit Withdrawal Agent
Commission System.
4. RANKING AND COVENANTS.
(a) Except for the Restricted Debt Amount and Permitted Debt, no Debt
shall be incurred or suffered to exist by the Company that is senior to or pari
passu with this Note in right of payment, whether with respect to interest,
principal, damages or upon liquidation or dissolution or otherwise. So long as
any Notes are outstanding, the Company will not, and will not permit any
Subsidiary to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any Debt of any kind in excess of the Restricted Debt Amount
then in effect, other than Permitted Debt.
(b) So long as any Notes are outstanding, neither the Company nor any
Subsidiary shall, directly or indirectly, (i) redeem, purchase or otherwise
acquire any capital stock or set aside any monies for such a redemption,
purchase or other acquisition of its capital stock (other than pursuant to
clause (a) of the definition of Excluded Stock), or (ii) issue any Floating
Price Security.
(c) If, at any time (i) while any Note is outstanding, the Company or
any Subsidiary issues or incurs any Debt other than Permitted Debt or Debt
within the limitations of the Restricted Debt Amount, or (ii) prior to September
29, 2007, the Company or any Subsidiary effects any Subsequent Placement (other
than the issuance of Common Shares pursuant to the definition of Excluded
Stock), the Company shall notify the Holder of such event and offer to
repurchase an amount of this Note from the Holder having an aggregate price (as
determined below) equal to the lesser of (A) the net proceeds of such Debt or
Subsequent Placement, and (B) the aggregate amount required to repurchase this
entire Note pursuant to this SECTION 4(C). All Notes repurchased under this
SECTION 4(C) shall be repurchased at a price equal to the greater of (A) the
outstanding principal amount of the Notes purchased, plus all accrued but unpaid
interest thereon through the date of payment, and (B) the Event Equity Value of
the Underlying Shares then issuable upon conversion of the Notes purchased
(without regard to any restrictions on conversion) and the closing of such
repurchase shall occur promptly upon notice from the Holder of an exercise of
rights hereunder.
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5. RESERVATION OF UNDERLYING SHARES. The Company covenants that it will at
all times reserve and keep available out of its authorized but unissued and
otherwise unreserved Common Shares, solely for the purpose of enabling it to
issue Underlying Shares as required hereunder, the number of Underlying Shares
which are then issuable and deliverable upon the conversion of (and otherwise in
respect of) each Note (taking into account the adjustments set forth in SECTION
11), free from preemptive rights or any other contingent purchase rights of
Persons other than the Holder. The Company covenants that all Underlying Shares
so issuable and deliverable shall, upon issuance in accordance with the terms
hereof, be duly and validly authorized and issued and fully paid and
nonassessable. The Company covenants that it shall use its best efforts to
satisfy each of the Equity Conditions.
6 . REGISTRATION OF NOTES. The Company shall register the Notes upon
records to be maintained by the Company for that purpose (the "NOTE REGISTER")
in the name of each record holder thereof from time to time. The Company may
deem and treat the registered Holder of this Note as the absolute owner hereof
for the purpose of any conversion hereof or any payment of interest or principal
hereon, and for all other purposes, absent actual notice to the contrary.
7. REGISTRATION OF TRANSFERS AND EXCHANGES. Subject to Section 4.1 of the
Purchase Agreement, this Note and all rights hereunder are transferable in whole
or in part upon the books of the Company by the Holder; provided, however, that
the transfer ee shall agree in writing to be bound by the terms and subject to
the conditions of this Note and the Purchase Agreement. The Company shall
register the transfer of any portion of this Note in the Note Register upon
surrender of this Note to the Company at its address for notice set forth
herein. Upon any such registration or transfer, a new Note, in substantially the
form of this Note (any such new Note, a "NEW NOTE"), evidencing the portion of
this Note so transferred shall be issued to the transferee and a New Note
evidencing the remaining portion of this Note not so transferred, if any, shall
be issued to the Holder. The acceptance of the New Note by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Note. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge or other fee
will be imposed in connection with any such registration of transfer or
exchange.
8. CONVERSION.
(a) AT THE OPTION OF THE HOLDER. The Holder may apply all or any
portion of the outstanding principal amount of this Note to acquire Common
Shares at the applicable Conversion Price then in effect. The Holder may apply
all or a portion of the principal amount of this Note to acquire Common Shares
pursuant to this paragraph at any time and from time to time after the Issue
Date, by delivering to the Company a conversion notice (the "CONVERSION
NOTICE"), in the form attached hereto, appropriately completed and duly signed,
and the date any such Conversion Notice is delivered to the Company (as
determined in accordance with the notice provisions hereof) is a "CONVERSION
DATE." The application of all or any portion of the principal amount of this
Note to acquire Common Shares under this paragraph is referred to in this Note
as a "conversion".
(b) AT OPTION OF THE COMPANY. If, at any time following the 15th
month anniversary of the Issue Date, the VWAP for each of any 25 consecutive
Trading Days exceeds
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150% of the initial Conversion Price (as adjusted for any stock dividend, stock
split, stock combination or other similar transaction), the Company may require
the Holder to convert all or any portion of this Note into Common Shares based
on the Conversion Price then in effect. The Company may require a conversion
pursuant to this paragraph by delivering an irrevocable written notice of such
election to the Holder within two Trading Days following the occurrence of such
event, and the tenth Trading Day after the delivery of such notice will be the
"CONVERSION DATE" for such required conversion. Notwithstanding the foregoing,
the Company may not require any conversion under this paragraph (and any notice
thereof will be void), unless from the beginning of such 25 consecutive Trading
Days through the Conversion Date, the Equity Conditions are satisfied (or waived
in writing by the Holder) on each Trading Day with respect to all of the
Underlying Shares then issuable upon conversion in full of the outstanding
amount of all Notes, Warrants and Unit Warrants (without regard to any
limitation on conversion or exercise, as applicable, or issuance of Common
Shares).
9. MECHANICS OF CONVERSION.
(a) The number of Underlying Shares issuable upon any conversion of
this Note hereunder shall equal the outstanding principal amount of this Note to
be converted, plus the amount of any accrued but unpaid interest on the portion
of the principal amount of this Note to be converted through the Conversion
Date, divided by the Conversion Price on the Conversion Date.
(b) Upon any conversion of this Note, the Company shall promptly (but
in no event later than three Trading Days after the date the Company receives
the applicable Conversion Notice) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder, and in such name or names
as the Holder may designate, a certificate for the Underlying Shares issuable
upon such conversion. The Holder, or any Person so designated by the Holder to
receive Underlying Shares, shall be deemed to have become the holder of record
of such Underlying Shares as of the Conversion Date. The Company shall, upon
request of the Holder, except to the extent prohibited by law or to the extent
the Company cannot do so after using commercially reasonable efforts, deliver
Underlying Shares hereunder electronically through the DTC or another
established clearing corporation performing similar functions, and shall issue
such Underlying Shares in the same manner as Common Shares in respect of
Interest Payments are issued pursuant to SECTION 2(E) above.
(c) The Holder shall be required to deliver the original Note being
converted in order to effect a conversion of such Note. The Holder shall,
however, be entitled to effect the conversion of the unconverted principal
amount by notice to the Company at any time during which the Note is in transit
to or from the Company or in the possession of the Company. Upon surrender of
this Note following one or more partial conversions, the Company shall promptly
deliver to the Holder a New Note representing the remaining outstanding
principal amount of such Note.
(d) If the Holder is converting less than all of the principal amount
of this Note, or if a conversion hereunder may not be effected in full due to
the application of SECTION 15, the Company shall
10
honor such conversion to the extent permissible hereunder and shall promptly
deliver to the Holder a note identical in form to this Note indicating the
principal amount (and accrued interest) which has not been converted.
(e) The Company's obligations to issue and deliver Underlying Shares
upon conversion of this Note in accordance with the terms hereof are absolute
and unconditional, irrespective of any action or inaction by any Holder to
enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by any Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by any Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to any Holder in connection with the
issuance of such Underlying Shares.
(f) If by the third Trading Day after a Conversion Date the Company
fails to deliver or cause to be delivered to the Holder such Underlying Shares
in such amounts and in the manner required pursuant to SECTION 9(A), then the
Holder will have the right to rescind such conversion. If by the third Trading
Day after a Conversion Date the Company fails to deliver or cause to be
delivered to the Holder such Underlying Shares in such amounts and in the manner
required pursuant to SECTION 9(A), and if after such third Trading Day the
Holder purchases (in an open market transaction or otherwise) Common Shares to
deliver in satisfaction of a sale by the Holder of the Underlying Shares which
the Holder anticipated receiving upon such conversion (a "BUY-IN"), then the
Company shall either (i) pay cash to the Holder (in addition to any other
remedies available to or elected by the Holder) in an amount equal to the
Holder's total purchase price (including brokerage commissions, if any) for the
Common Shares so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Shares) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Shares and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (x) such number of Common Shares, multiplied by (y) the Closing Price
on the date of the event giving rise to the Company's obligation to deliver such
certificate.
(g) Each certificate for Underlying Shares shall bear a restrictive
legend to the extent and as provided in the Purchase Agreement and any
certificate issued at any time in exchange or substitution for any certificate
bearing such legend, shall also bear such legend, unless, in the opinion of
counsel for the holder thereof (which opinion shall be reasonably satisfactory
to counsel for the Company), the securities represented thereby are not, at such
time, required by law to bear such legend.
10. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT" means any one of the following events (whatever
the reason and whether it shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of any court, or
any order, rule or regulation of any administrative or governmental body):
(i) any default in the payment (free of any claim of
subordination) of principal, interest or liquidated damages in respect
of any Notes, as and when the
11
same becomes due and payable (whether on a date specified for the
payment of interest or the date on which the obligations under the Note
mature or by acceleration, redemption, prepayment or otherwise), unless
such default is cured within three Business Days following such
default;
(ii) the Company or any Subsidiary defaults in any of its
covenants or other obligations in respect of (A) the Restricted Debt
Amount, or (B) any other note or any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced, any Debt due under any long term leasing or
factoring arrangement of the Company or any Subsidiary in an amount
exceeding US$500,000, whether such Debt now exists or is hereafter
created, and any such default is not waived or cured within the time
permitted by such agreements or which results in the Debt becoming due
and payable; or any event or circumstance occurs that with notice or
lapse of time would constitute such a default.
(iii) there is entered against the Company or any Subsidiary
(A) a final judgment or order for the payment of money in an aggregate
amount exceeding US$500,000, or (B) any one or more non-monetary final
judgments that in either case, has not been paid within 30 days thereof
or that has, or could reasonably be expected to have, individually or
in the aggregate, a Material Averse Effect on the Company or any
Subsidiary;
(iv) any provision of any Transaction Document, at any time
after the Original Issue Date, and for any reason other than as
expressly permitted thereunder, ceases to be in full force and effect;
or the Company contests in any manner the validity or enforceability of
any Transaction Document or any provision thereof; or the Company
denies that it has any or further liability or obligation under any
Transaction Document, or purports to revoke, terminate or rescind any
Transaction Documents;
(v) the occurrence of a Triggering Event; or
(vi) the occurrence of a Bankruptcy Event.
(b) At any time or times following the occurrence of an Event
of Default, the Holder shall have the option to elect, by notice to the
Company (an "EVENT NOTICE"), to require the Company to repurchase all
or any portion of the outstanding principal amount of this Note, at a
repurchase price equal to the greater of (A) such outstanding principal
amount, plus all accrued but unpaid interest thereon through the date
of payment, or (B) the Event Equity Value of the Underlying Shares
issuable upon conversion of such principal amount and all such accrued
but unpaid interest thereon. The aggregate amount payable pursuant to
the preceding sentence is referred to as the "EVENT PRICE." The Company
shall pay the Event Price to the Holder no later than the third Trading
Day following the date of delivery of the Event Notice with respect to
any cash payment and on the 20th Trading Day following the date of
delivery of the Event Notice with respect to any payment in Common
Shares to the extent permitted (the "EVENT PAYMENT
12
DATE"), and upon receipt of the Event Price the Holder shall deliver
this Note and certificates evidencing any Underlying Shares so
repurchased to the Company (to the extent such certificates have been
delivered to the Holder).
(c) The Company, at the option of the Holder, shall pay the
Event Price (i) in cash, (ii) in Common Shares, or (iii) any
combination thereof. The Holder may specify the form of payment in the
Event Notice; failure to timely provide such notice shall be deemed an
election by the Holder to be paid the Event Price in cash. In the event
that the Holder elects to be paid all or any portion of the Event Price
in Common Shares, the number of Common Shares to be issued to the
Holder as payment of the Event Price shall be calculated by dividing
the portion of the Event Price the Holder has elected to receive in
Common Shares by 90% of the VWAP for the five consecutive Trading Days
immediately preceding the Event Payment Date. To the extent an Event
Price is to be paid in Common Shares, the Company shall, on or before
the third Trading Day following the applicable Event Payment Date, (i)
issue and deliver to the Holder a certificate, registered in the name
of the Holder or its designee, for the number of Common Shares to which
the Holder is entitled, or (ii) at all times after the Holder has
notified the Company that this clause (ii) shall apply, except to the
extent prohibited by law or to the extent the Company cannot do so
after using commercially reasonable efforts, credit the number of
Common Shares to which the Holder shall be entitled to the Holder's or
its designee's balance account with the DTC through its Deposit
Withdrawal Agent Commission System.
(d) In connection with any Event of Default, the Holder need
not provide, and the Company hereby waives, any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and
without expiration of any grace period enforce any and all of its
rights and remedies hereunder and all other remedies available to it
under applicable law. Any such declaration may be rescinded and
annulled by the Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or
impair any right incidental thereto.
11. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
Underlying Shares upon conversion of (or otherwise in respect of) this Note
shall be made without charge to the Holder for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the registration of any certificates for Underlying Shares or Notes in a name
other than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Note or
receiving Underlying Shares in respect hereof.
12. REPLACEMENT CERTIFICATES. If any certificate for Underlying Shares
is mutilated, lost, stolen or destroyed, or the Holder fails to deliver such
certificate as may otherwise be provided herein the Company shall issue or cause
to be issued in exchange and substitution for and upon cancellation hereof, or
in lieu of and substitution for such certificate, a replacement certificate,
bearing the same legends, if any, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction (in such case)
and, in each case, customary and reasonable indemnity. Applicants for a new
certificate under such circumstances
13
shall also comply with such other reasonable regulations and procedures and pay
such other reasonable third-party costs as the Company may prescribe.
13. CERTAIN ADJUSTMENTS. The Conversion Price is subject to adjustment
from time to time as set forth in this SECTION 13.
(a) DIVIDENDS AND STOCK SPLITS. If the Company, at any time while this
Note is outstanding, (i) pays a dividend on its Common Shares or otherwise makes
a distribution on any class of capital stock that is payable in Common Shares,
(ii) subdivides outstanding Common Shares into a larger number of shares, or
(iii) combines outstanding Common Shares into a smaller number of shares, then
in each such case the applicable Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of Common Shares outstanding
immediately before such event and the denominator of which shall be the number
of Common Shares outstanding immediately after such event. Any adjustment made
pursuant to clause (i) of this SECTION 13 (A) shall become effective immediately
after the record date for the determination of shareholders entitled to receive
such dividend or distribution, and any adjustment pursuant to clause (ii) or
(iii) of this SECTION 13(A) shall become effective immediately after the
effective date of such subdivision or combination.
(b) PRO RATA DISTRIBUTIONS. If the Company, at any time while this Note
is outstanding, distributes to all holders of Common Shares (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Common Shares
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (including cash) (in each
case, "DISTRIBUTED PROPERTY"), then in each such case the applicable Conversion
Price in effect immediately prior to the record date fixed for determination of
shareholders entitled to receive such distribution shall be adjusted (effective
on such record date) to equal the product of such Conversion Price multiplied by
a fraction the denominator of which shall be the average of the Closing Prices
for the five Trading Days immediately prior to (but not including) such record
date (the "AVERAGE CLOSING PRICE") and the numerator of which shall be such
Average Closing Price less the then fair market value of the Distributed
Property distributed in respect of one outstanding share of Common Share, as
determined by the Company's independent certified public accountants that
regularly examine the financial statements of the Company (an "APPRAISER"). In
such event, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the average of the values determined by each of the
Appraiser and such additional appraiser. Subject to the approval of the TSX, as
an alternative to the foregoing adjustment to the applicable Conversion Price,
at the request of the Holder delivered before the 60th day after the record date
fixed for determination of shareholders entitled to receive such distribution,
the Company will hold the Distributed Property in escrow and deliver to the
Holder, the Distributed Property that the Holder would have been entitled to
receive in respect of such number of Underlying Shares had the Holder been the
record holder of such Underlying Shares immediately prior to such record date,
within three Trading Days following conversion of this Note.
(c) FUNDAMENTAL CHANGES. If, at any time while this Note is
outstanding, (i) the Company effects any amalgamation, merger or consolidation
of the Company with or into another Person, (ii) the Company effects any sale of
all or substantially all of its assets in one or
14
a series of related transactions, (iii) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Shares are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Shares or any compulsory share exchange pursuant
to which the Common Shares are effectively converted into or exchanged for other
securities, cash or property (other than as a result of a subdivision or
combination of Common Shares covered by SECTION 13(A) above) (in any such case,
a "FUNDAMENTAL CHANGE"), then upon any subsequent conversion of this Note, the
Holder shall have the right only to receive for each Underlying Share that would
have been issuable upon such conversion absent such Fundamental Change, the same
kind and amount of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Change if it had been,
immediately prior to such Fundamental Change, the holder of one Common Share
(the "ALTERNATE CONSIDERATION"). The aggregate Conversion Price will not be
affected by any such Fundamental Change, but the Company shall apportion such
aggregate Conversion Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of the
Alternate Consideration. If holders of Common Shares are given any choice as to
the securities, cash or property to be received in a Fundamental Change, then
the Holder shall be given the same choice as to the Alternate Consideration it
is entitled to receive upon any conversion of the Holder's Note following such
Fundamental Change. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Change shall issue to the Holder a Note consistent with the foregoing provisions
and evidencing the Holders' right to convert such Note only into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental Change
is effected shall include terms requiring any such successor or surviving entity
to comply with the provisions of this SECTION 13(C) and ensuring that the Note
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Change.
(d) SUBSEQUENT EQUITY SALES.
(i) If, at any time prior to December 1, 2008, the Company or
any Subsidiary issues additional Common Shares or rights, warrants,
options or other securities or debt convertible, exercisable or
exchangeable for Common Shares or otherwise entitling any Person to
acquire Common Shares (collectively, "COMMON SHARE EQUIVALENTS") at a
purchase price per Common Share (the "EFFECTIVE PRICE") less than the
Conversion Price (as adjusted hereunder to such date), then the
Conversion Price shall be reduced to equal the Effective Price;
provided that in no event shall the Conversion Price be reduced below
US$6.67 (as adjusted for any stock split, stock combination,
reorganization or similar event affecting the capital stock of the
Company). For purposes of this paragraph, in connection with any
issuance of any Common Share Equivalents, (A) the maximum number of
Common Shares potentially issuable at any time upon conversion,
exercise or exchange of such Common Share Equivalents (the "DEEMED
NUMBER") shall be deemed to be outstanding upon issuance of such Common
Share Equivalents, (B) the Effective Price applicable to such Common
Shares shall equal the minimum dollar value of consideration payable to
the Company to purchase such Common Share Equivalents and to convert,
exercise or exchange them into Common Shares, divided by the Deemed
Number, (C) no
15
further adjustment shall be made to the Conversion Price upon the
actual issuance of Common Shares upon conversion, exercise or exchange
of such Common Share Equivalents, and (D) to the extent that any such
Common Share Equivalents expire before fully converted, exercised or
exchanged, the Exercise Price will be readjusted to reflect such
expiration.
(ii) If, at any time while this Note is outstanding, the
Company directly or indirectly issues Common Share Equivalents with an
Effective Price or a number of underlying shares that floats or resets
or otherwise varies or is subject to adjustment based (directly or
indirectly) on market prices of the Common Shares (a "FLOATING PRICE
SECURITY"), then for purposes of applying the preceding paragraph in
connection with any subsequent conversion, the Effective Price will be
determined separately on each Conversion Date and will be deemed to
equal the lowest Effective Price at which any holder of such Floating
Price Security is entitled to acquire Common Shares on such Conversion
Date (regardless of whether any such holder actually acquires any
shares on such date).
(iii) Notwithstanding the foregoing, no adjustment will be
made under this paragraph (d) in respect of any issuances of Common
Shares and Common Share Equivalents made pursuant to the definition of
Excluded Stock.
(e) CALCULATIONS. All calculations under this SECTION 13 shall be made
to the nearest cent or the nearest 1/100th of a share, as applicable. The number
of Common Shares outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Shares.
(f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment
pursuant to this SECTION 13, the Company at its expense will promptly compute
such adjustment in accordance with the terms hereof and prepare a certificate
describing in reasonable detail such adjustment and the transactions giving rise
thereto, including all facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company's Transfer Agent.
(g) NOTICE OF CORPORATE EVENTS. If the Company (i) declares a dividend
or any other distribution of cash, securities or other property in respect of
its Common Shares, including without limitation any granting of rights or
warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits shareholder approval for any Fundamental Change, or (iii) authorizes
the voluntary dissolution, liquidation or winding up of the affairs of the
Company, then the Company shall deliver to the Holder a notice describing the
material terms and conditions of such transaction, at least seven Trading Days
prior to the applicable record or effective date on which a Person would need to
hold Common Shares in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to ensure that the Holder is given the practical opportunity to convert this
Note prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure
16
to deliver such notice or any defect therein shall not affect the validity of
the corporate action required to be described in such notice.
14. CHANGE OF CONTROL.
(a) EXCHANGE UPON CHANGE OF CONTROL. As long any Notes are outstanding,
prior to the consummation of any Change of Control following which the Company
is not a surviving entity, the Company will secure from the Person purchasing
such assets or the successor resulting from such Change of Control (in each
case, the "ACQUIRING ENTITY") a written agreement (in form and substance
reasonably satisfactory to the Holder) to deliver to the Holder in exchange for
such Note, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Note (including, without
limitation, having an interest rate and conversion price equal to the interest
rate and the Conversion Price of this Note) and reasonably satisfactory to the
Holder. Prior to the consummation of any other Change of Control, the Company
shall make appropriate provision (in form and substance reasonably satisfactory
to the Holder) to ensure that the Holder will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be) such
number of Common Shares immediately theretofore acquirable and receivable upon
the conversion of this Note such shares of stock, securities or assets that
would have been issued or payable in such Change of Control with respect to or
in exchange for the number of Common Shares which would have been acquirable and
receivable upon the conversion of this Note as of the date of such Change of
Control (without taking into account any limitations or restrictions on the
convertibility of the Notes).
(b) OPTIONAL REPURCHASE UPON CHANGE OF CONTROL. In addition to the
rights of the Holder under SECTION 14(A), upon a Change of Control of the
Company the Holder shall have the right, at the Holder's option, to require the
Company to repurchase all or a portion of this Note at an aggregate price equal
to the greater of (A) the outstanding principal amount of such Note plus all
accrued but unpaid interest thereon through the date of payment, and (B) the
Equity Event Value of the Underlying Shares issuable upon conversion of such
Note (without taking into account any limitations or restrictions on the
convertibility of the Notes) (the "CHANGE OF CONTROL REPURCHASE PRICE"). No
sooner than 60 days nor later than 10 days prior to the consummation of a Change
of Control, but not prior to the public announcement of such Change of Control,
the Company shall deliver written notice thereof via facsimile and overnight
courier (a "NOTICE OF CHANGE OF CONTROL") to the Holder. At any time during the
period beginning after receipt of a Notice of Change of Control (or, in the
event a Notice of Change of Control is not delivered at least ten days prior to
a Change of Control, at any time on or after the date which is ten days prior to
a Change of Control) and ending two Trading Days after the date of such Change
of Control, the Holder may require the Company to repurchase all or a portion of
this Note by delivering written notice thereof via facsimile and overnight
courier (a "NOTICE OF REPURCHASE UPON CHANGE OF CONTROL") to the Company, which
Notice of Repurchase Upon Change of Control shall indicate (i) the portion of
this Note that the Holder is submitting for repurchase, and (ii) the applicable
17
Change of Control Repurchase Price, as calculated pursuant to this SECTION
14(B). Upon the Company's receipt of a Notice of Repurchase Upon Change of
Control from the Holder, the Company shall promptly, but in no event later than
two Trading Days following such receipt, notify the Holder by facsimile of the
Company's receipt of such Notice of Repurchase Upon Change of Control. The
Company shall deliver the applicable Change of Control Repurchase Price
simultaneously with, and only upon, the consummation of the Change of Control
(such date, the "CHANGE OF CONTROL PAYMENT DATE"). Payments provided for in this
SECTION 14(B) shall have priority to payments to other shareholders in
connection with a Change of Control.
15. LIMITATION ON CONVERSION.
(a) Notwithstanding anything to the contrary contained herein, the
maximum aggregate number of Common Shares that may be issued pursuant to the
Transaction Documents shall not exceed the Issuable Maximum, unless shareholder
approval for issuances of Common Shares in excess of the Issuable Maximum is
obtained pursuant to Section 4.21 of the Purchase Agreement.
(b) Notwithstanding anything to the contrary contained herein, the
maximum aggregate number of Common Shares that may be issued to KFOC pursuant to
the Transaction Documents shall not exceed the KFOC Maximum, unless shareholder
approval for issuances of Common Shares in excess of the KFOC Maximum is
obtained pursuant to Section 4.21 of the Purchase Agreement.
(c) During the ten Trading Days preceding the date for an election by
the Holder under SECTION 2(B) or 3(B) (a "TRIGGERING ELECTION"), the Holder may
request the Company to confirm that, to the Company's knowledge, there exists as
of that time no material undisclosed information concerning the Company. Upon
receipt of this request, the Company shall immediately and in good faith conduct
such a review of its condition, results of operations, assets, prospects,
discussions or negotiations with any third parties concerning potential
transactions of any type, and its public disclosures as a reasonable investor
would consider adequate to discover whether there exists, as of such date, any
material information concerning the Company that has not previously been
publicly disclosed, and, based on this review, respond to the Holder in writing,
which response shall be delivered no later than the third Trading Day following
receipt of such request from the Holder, either confirming that there exists no
material undisclosed information concerning the Company or indicating that, in
good faith, the Company cannot as of such time provide such confirmation.
(d) If the Holder makes a request for confirmation pursuant to SECTION
15(C), the Company shall thereupon have, during the period from the date of its
response to such request through the Trading Day on which the Holder must make
the Triggering Election, a continuing obligation to (i) monitor its conditions,
results of operations, prospects, assets discussions or negotiations with others
and public disclosures and (ii) immediately correct the initial response it
provided to the Holder if a change or series of changes shall occur that would,
taken as a whole, cause the Company's initial response, in light of such change
or changes, to be different if given as of such time.
(e) If, in response to a request delivered to the Company by the Holder
pursuant to SECTION 15(C), the Company determines that it cannot provide the
requested confirmation (or if the Company provides such confirmation then,
pursuant to SECTION 15(D), corrects such confirmation by indicating that it has
determined that there is then in existence material undisclosed information
concerning the Company), then the Holder shall have the right by notice
delivered to the Company at any time before the Trading Day on which it must
make
18
the Triggering Election to require the Company to disclose such material
undisclosed information in sufficient time and in a manner that will cause the
information to be widely disseminated to potential investors located in Canada
and the United States before the date on which the Triggering Election shall be
due; provided that, (i) if the Company, pursuant to SECTION 15(D), makes a
change in its initial response on a date where the time remaining before a
Triggering Election is not sufficient to permit a public announcement to be
widely disseminated before the Holder must make its election, the Holder's date
for the Triggering Election will be extended as necessary to allow the
announcement to be made and widely disseminated; and (ii) if at any time the
Holder and its affiliates collectively own less than 20% of the Common Shares
then outstanding, the right to require the Company immediately to disclose
material undisclosed information will be subject to the Company's right to
refuse such a request if, in its good faith judgment, disclosure would cause
material injury to the Company.
16. NO FRACTIONAL SHARES. The Company shall not issue or cause to be
issued fractional Underlying Shares on conversion of this Note. If any fraction
of an Underlying Share would, except for the provisions of this SECTION 16, be
issuable upon conversion of this Note, the number of Underlying Shares to be
issued will be rounded down to the nearest whole share, with the fractional
interest to be paid in cash based on the current market price.
17. NOTICES. Any and all notices or other communications or deliveries
hereunder (including any Conversion Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in the Purchase Agreement prior to 5:30 p.m. (New York City time) on a
Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in the Purchase Agreement on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day
following the date of sending, if sent by nationally recognized overnight
courier service specifying next Business Day delivery, or (iv) upon actual
receipt by the party to whom such notice is required to be given, if by hand
delivery. The address and facsimile number of a party for such notices or
communications shall be as set forth in the Purchase Agreement, unless changed
by such party by two Trading Days' prior notice to the other party in accordance
with this SECTION 17.
18. MISCELLANEOUS.
(a) This Note shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Subject to
the restrictions on transfer set forth herein and in the Purchase Agreement,
this Note may be assigned by the Holder. The Company shall not be permitted to
assign this Note absent the prior written consent of the Holder.
(b) Subject to SECTION 18(A), nothing in this Note shall be construed
to give to any person or corporation other than the Company and the Holder any
legal or equitable right, remedy or cause under this Note.
(c) No waiver or delay on the part of the Holder in exercise of any
right or privilege hereunder and no waiver of Event of Default hereunder shall
operate as a waiver
19
xxxxxxx unless made in writing and signed by the Holder. No written waiver shall
preclude the further exercise by the Holder of any right or privilege hereunder,
or extend or apply to any further Event of Default.
(D) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
(e) The headings herein are for convenience only, do not constitute a
part of this Note and shall not be deemed to limit or affect any of the
provisions hereof.
(f) In case any one or more of the provisions of this Note shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Note shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Note.
(g) In the event of any stock split, subdivision, dividend or
distribution payable in shares of Common Stock (or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly shares of Common Stock), combination or other similar
recapitalization or event occurring after the date hereof, each reference in
this Note to a price (if not otherwise adjusted) shall be amended to
appropriately account for such event.
(h) This Note, together with the other Transaction Documents,
constitutes the entire agreement of the parties with respect to the subject
matter hereof. No provision of this Note may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and the
Holder or, in the case of a waiver, by the Holder. No waiver of any default with
respect to any provision, condition or requirement of this Note shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default or
a waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission
20
of either party to exercise any right hereunder in any manner impair the
exercise of any such right. The restrictions set forth in SECTIONS 15(A) and (B)
hereof may not be amended or waived.
(i) The Holder shall have no rights as a holder of Common Shares as a
result of being a holder of this Note, except as required by law or rights
expressly provided in this Note.
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SIGNATURE PAGE FOLLOWS]
21
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a
duly authorized officer as of the date first above indicated.
NORTH AMERICAN PALLADIUM LTD.
"Xxx X. XxxXxxxx" (signed)
By: /s/ Xxx X. XxxXxxxx
------------------------------------
Name: Xxx X. XxxXxxxx
Title: Vice President, Finance & CFO
22
SCHEDULE 1
FORM OF CONVERSION NOTICE
(To be executed by the registered Holder in order to convert Note)
The undersigned hereby elects to convert the specified principal amount of
Convertible Notes (the "NOTES") into common shares (the "COMMON SHARES"), of
North American Palladium Ltd., a company organized under the Canadian Business
Corporations Act (the "COMPANY"), according to the conditions hereof, as of the
date written below.
---------------------------------------------------------
Date to Effect Conversion
---------------------------------------------------------
Principal amount of Notes owned prior to conversion
---------------------------------------------------------
Principal amount of Notes to be converted
(including accrued but unpaid interest thereon)
---------------------------------------------------------
Number of Common Shares to be Issued
---------------------------------------------------------
Applicable Conversion Price
---------------------------------------------------------
Principal amount of Notes owned subsequent to Conversion
---------------------------------------------------------
Name of Xxxxxx
By
--------------------------------------------------------
Name:
Title:
